First, a group insurance contract is an agreement to "transfer the risk" of defined members of the group as agreed to by the parties, to the insurance company. The insurance company, in turn has a reinsurance program that transfers specific elements of the group's risk to yet another insurance company. In a simple case of a heart attack and related surgery, the total claim could easily exceed $500,000. In large claims like this, which are predictable in frequency in a group setting, the insurance company would actually only pay about $10,000 to $30,000 of the claim and the rest would be paid by the reinsurance contract carrier. So, there are actually two or more contracts in play in group insurance. The specific definitions of "who is covered" is carefully spelled out in the contract that Plan Sponsor (Employer) signed with Insurance Carrier and the exact same definition is spelled out in the "reinsurance" contract that the Insurance carrier signed for this group contract with their insurance provider. The definition cannot be changed unless ALL the parties agree. I have never seen this changed as a matter of course in nearly 30 years of COBRA administration.
Second, the COBRA Participants are not a party to the Group Contract. Their coverage, like all the other participants in the group coverage is either included or excluded on the contract by the definitions contained in the contract. It is not a function of a decision on anyone's part. It is a definition. The contract says, as related to COBRA participants, that the person must be "required" to be covered by the COBRA rules. The same is true for FMLA participants as well. That requirement to be covered may be lost when a payment is made late. So, the "requirement" to be covered was lost, the rights that COBRA extends to the COBRA Participants is lost and the the allowance to be included in the group contract is lost. It is not the result of anyone's decision but rather the recognition of the fact that the payment was made late.
It often takes 2 weeks and it is not uncommon for it to take 2 months before all the systems reflect their updated status as an active COBRA participant. The failure to make the payment would not in anyway speed up or affect the process of reinstatement in anyway. The carriers are slow to reinstate for a lot of reasons. Principally because they are adding back liability under COBRA. Only 20% of COBRA Qualifiers accept and pay for COBRA coverage. The fact that COBRA participants have average claims that are 5 times higher than the average "active at work" employee in the group is why the carriers proceed slowly making sure that all is in order before authorizing providers to provide services under the group coverage.
The Plan Sponsor (the employer) does not have the right to make changes to the definitions in the contract without the full disclosure and agreement in writing with the Insurance Carrier. The Insurance Carrier, in turn, cannot make any changes to Group Contract without changing or amending their reinsurance contract. Both Insurance Carrier contracts with employer and the reinsurance carrier include protections for COBRA participants and assures the specific rights of both the insurance company and the COBRA participants. Without any room for misunderstanding, the requirement for "initiating" payments is spelled out in the rules of COBRA and subsequent case law.
Insurance Carriers, like the IRS, often gives out incomplete and even inaccurate information. The customer support folks that are on the phone do not have access to the full system or any “work in process” - but only to what the Insurance Carrier has completed work on. If a reinstatement is in process, they have been trained to answer just as they did. "We do not have any information on that and the premium has not been paid." Of course the bill has not been paid. It takes two months or longer to get a COBRA participant to even appear on an invoice that has a 45 day payment window from the date it is mailed. This information is inappropriate without the rest of the reason that the bill has not been paid. Remember that the COBRA Participants are not a party to the contract but rather have specific rights in the contract that are included by reference and are the rules and regulations in COBRA law.
Claim payment promises made by the Insurance Carrier are always contingent on the person's eligibility at the time of the service delivery, as determined after the fact. In just the last two months, I have seen a $40,000 birth hospital invoice reversed because of no COBRA paperwork even though the carrier issued an authorization to the hospital for the care and had already paid the providers. The COBRA qualifier never responded to the enrollment requests and the coverage was retroactively termed for non-payment by the client/broker on the group. The claimant had no recourse. In another case just last month, the client had just a two week delay in terming the coverage for a COBRA qualifier. In that two weeks, a $16,000 procedure was done after being authorized by the insurance carrier. COBRA was not accepted or paid by the deadline and the individuals are totally responsible for the expense as the lack of COBRA acceptance resulted in a termination from coverage date prior to the date of service.
When we go to the doctor or hospital, we are asked to sign a lot of paperwork. Part of it assigns any payment for those services to the healthcare provider. But, more importantly in this case, it is also a pledge of responsibility by a specific party should the insurance carrier fail to pay or in the future reverse any payments made on the patient's behalf. However, the very rules that were put in place to protect COBRA Participant's rights have another sharp edge that severs their rights.
Additionally, if the COBRA participant fails to pay on time and is termed, unless this occurs within the first 60 days on COBRA or at Open Enrollment for the Marketplace plans, the former COBRA eligible person and their family may not be able to secure coverage. Now, there is a prohibition on Pre-Existing Condition Exclusion from coverage but coverage can be refused except at Open Enrollment or as a result of a HIPAA event. Now, there is a 60 days window from the last date covered for a person exiting a group plan due to a COBRA event, but after that 60 days has expired, the party must wait until Open Enrollment for any Marketplace plan or a New Hire Enrollment for a new job.